Complete Prosper Diversification

With the economy a bit unsteady, the importance of diversification cannot be ignored. WealthBoy wrote a great post to introduce diversification on Prosper where he observed that a lender should pick up at least 30 different loans to help spread out the risk. Whether you’re diversifying by picking up 30 or 130 loans, it’s important to not just talk the talk, but to walk the walk. If you’re going to diversify, truly diversify.

The power in diversification comes from picking up loans that succeed or fail more or less independently. This independent behavior is characterized statistically by looking at the correlation between two investments. To explore this, travel with me to Sandusky, Ohio for a minute to think through this. Tommy Boy Callahan is about to go on a sales trip to save his family’s auto parts business. If I’m a lender with 30 loans out to all the various employees of Callahan Auto, I’m taking a large risk. If Tommy fails on his trip, all the plant employees will be out of a job, and a very high percentage of my loans will go belly up. In this scenario, there’s a high correlation between one of my loans failing, and one of the other loans failing as well. A lender could have a huge number of loans to the workers, but it wouldn’t do me any good because they’re all likely to fail together. In other words, my 30 loans have only created the appearance of diversification.

To truly diversify, it’s important to distribute those eggs across multiple baskets. Spread loans across multiple states to help avoid local downturns and across different credit grades, incomes, and jobs to target different steps on the socio-economic ladder. By spreading out your lending, you can reduce correlation between loans and reap the benefits of true diversification.

Lenders

We’re excited to announce today a partnership with Western Independent Bankers — a consortium of small community banks — that will give more banks the opportunity to offer credit to their customers, and more consumers access to affordable loans. Banks are under increasing pressure to deliver attractive interest rates for all consumers, and smaller banks [...]

Today, Prosper Marketplace is excited to announce its first-ever acquisition — American Healthcare Lending, a leading patient financing platform. This is an important step in expanding our capabilities and bringing our product into a market where we believe it can make a positive impact. Healthcare lending is a growing industry, and one that we’re excited [...]

Prosper has recently made the following updates to its API and data files: 1. As of January 25th, historical data for each calendar quarter will now be made available 45 days after the close of the quarter. 2. Investors on the Prosper platform will still have access to the same data for new listings as [...]

Monthly Archive

Tags

Notice: Blogs and other materials posted on or linked from this page that use the name "Prosper" generally use that name to refer to Prosper Marketplace, Inc. if published before January 31, 2013 and to refer to Prosper Funding LLC if published on or after February 1, 2013.

As of February 1, 2013, the Prosper marketplace was transferred by Prosper Marketplace, Inc. to Prosper Funding LLC, a wholly-owned subsidiary of Prosper Marketplace, Inc. From and after February 1, 2013 Prosper Funding LLC is the sole obligator of Notes offered and secured by loans made through the Prosper marketplace, including Notes originally issues by Prosper Marketplace, Inc. prior to such transfer. Prosper Marketplace Inc. contiinues to provide services to Prosper Funding LLC relating to loan and Note servicing, and may interact with borrowers and investors in relation thereto as agent of Prosper Funding, LLC. Except where otherwise noted, throughout this website "Prosper" refers to Prosper Funding LLC including acting directly or through its agents.

All personal loans are made by WebBank, a Utah-chartered Industrial Bank. All Prosper personal loans are unsecured, fully amortizing personal loans.

Notes offered by Prospectus. Notes investors receive are dependent for payment on personal loans to borrowers. Not FDIC-insured; Investments may lose value; No Prosper or bank guarantee. Prosper does not verify all information provided by borrowers in listings. Investors should review the prospectus before investing.